Like the man on London Bridge who was unable to sell a pound note for a penny, application service providers (ASPs) offering rented access to hosted software believe they have a great-value proposition, but they are struggling to convince the customers.
'The numbers of subscribers are yet to grow as predicted,' said Richard Wendland of Internet investment and securities group Durlacher. 'There are pockets of activity with some ASPs becoming well-established, but users in organisations are in the hundreds and thousands rather than in the tens of thousands that were originally predicted.'
Research into the UK ASP market tends to confirm this picture of growth in pockets, with some providers clearly gaining customers, if not yet profitable. However, a number of high-profile ASPs are still unable to provide reference sites.
On paper the ASP model continues to look attractive, offering customers quick deployment and access to high-quality applications without major capital outlay. So how are ASP services viewed by customers, why has the market been slow to take off, and what are the prospects for the future?
Unique requirements
Like many organisations, the charity Oxfam is adopting a wait-and-see approach to ASPs. 'We want to avoid going with ASP solutions for a number of different small business processes as that could become fragmented and costly to manage. However, we haven't ruled it out for bigger systems,' said Graeme Steele, Oxfam's IT manager.
Steele argued that many of Oxfam's requirements are unique and so third-party solutions are unlikely to meet its business needs without Oxfam radically changing the way it works to fit the product.
'ASP applications typically need to be quite standardised but it seems that our systems are rarely out-of-the-box vanilla,' said Steele. 'We're wary of jumping into something completely new. We would rather see how other, bigger organisations get on first Ã, we prefer to be a close follower rather than leading edge.'
Opus Group, a Basingstoke-based marketing agency with about 60 staff, is a smaller firm that has taken the ASP plunge. It has used online backup services since June 1999, and has used Microsoft Exchange online since November 1999, both provided by UK-based ASP NetStore.
Email was becoming business-critical for communication with customers, said Opus Group director Tim Beadle. 'But it took us a while to get our in-house Exchange infrastructure stable. There were a range of service packs for NT and for Exchange, but they were not compatible. Sometimes we needed to go back to previous versions of the service packs,' said Beadle. 'In the end we managed to achieve 97 to 98 percent availability for the system but then we realised that we would need to move to Exchange 2000 and Windows 2000 and we thought, 'Oh no, we don't want to go down this route again.''
It was at this point that Opus chose the NetStore ASP solution, which was implemented quickly and without problems. The quoted NetStore price for the Exchange service is Ã,£19.95 per user per month. At the time of implementation, Opus Group had a 256kbit/s Net connection for email and Web browsing. This has now been upgraded to 512kbit/s and the system operates without any noticeable performance problems.
According to Beadle, there has not been a single unplanned outage in 11 months of operation of the Exchange service. He is, however, more cautious about the prospect of accessing the Microsoft Office suite on an ASP basis. 'Office is already installed on our computers. There might be an argument for office-bound staff but we also have many mobile staff who use laptops and who need the applications locally, so it would only be a partial solution to our requirements.'
For small organisations, there is a strong case for an ASP solution for server-based products but less advantage for desktop applications, said Beadle. 'Most of the difficulties with desktop products are related to user problems and an ASP solution won't necessarily help with that. An ASP solution for desktop applications might be more appropriate for large organisations with thousands of seats,' he said.
At present it seems that customers are most prepared to consider ASP solutions to address entirely new requirements such as e-commerce applications, online catalogues and managed Web sites.
David Hill, manager of managed business services at the newly-formed BT Ignite application services division, said, 'It's a matter of different stages. Once users have tried a simple application via an ASP and realised the benefits, they are more prepared to consider ASPs for existing applications used in running the business, such as Office and Exchange.'
ASP Interliant recently investigated why IT directors would not choose an ASP solution. Key reasons cited were satisfaction with current in-house applications and skills. Surprisingly, security and enterprise integration Ã, commonly viewed as significant customer concerns Ã, came further down the list.
Neil Brooks, UK marketing manager for Interliant, believes big spending in the run up to year 2000 means that it may be some time before firms re-evaluate their major applications and consider them for outsourcing. In his view, the UK market is ready for ASPs but the transition will tend to take place as key applications come up for renewal.
According to a new report from market researcher IDC, another reason for the patchy uptake is simply that buyers are only now beginning to learn about ASPs.
The report concludes that ASPs must do much more to reach and educate prospective users. 'Most smaller businesses have no idea what an ASP is, and no time to find out,' said Opus's Beadle.
Market awareness
It is notable that the Opus Group became aware of the ASP model while carrying out market research on behalf of IT and telecoms clients, rather than through any direct initiative of the ASP industry.
Richard Wendland of Durlacher agrees that market awareness is a key problem. 'It is the entry of large companies like Cable & Wireless (C&W) and BT into the ASP market that will lead to broader inroads into the general business community,' he said.
BT and C&W are both rolling out major ASP initiatives.
BT's Ignite application services division has 550 staff and a direct channel to 70,000 small and medium-sized firms. It is planning a launch this month, targeting both enterprise and small business customers.
The new A-Services venture from Cable & Wireless, Compaq and Microsoft was launched a fortnight ago. Its A-Workspace option extends the ASP concept by offering not only Microsoft Office or Exchange but also a Compaq iPaq PC, 17in monitor, network connection and 24-hour support. Monthly fees per user start at Ã,£175 for Microsoft Office 2000 and Ã,£199 for Office 2000 plus Exchange 2000. Cable & Wireless said this full-service approach is needed because until now businesses have regarded ASPs as only offering 'half a solution'.
Telecoms firms have the size and experience to deliver commodity software products such as Office and Exchange to a mass market that has, until now, been largely untouched by established ASPs. Their presence could galvanise the market and raise customer understanding of ASPs.
Whether the telecoms firms have the application service expertise to deliver total customer solutions for more complex applications is, however, open to question, acc- ording to Katy Ring, author of a recent Ovum market research report on ASPs.
'The main point about the ASP market is that it survives via partnerships Ã, neither application vendors, nor telecoms firms, ISPs, nor system integrators can coherently develop an ASP strategy in isolation from each other,' argued Ring.
Ring supports the widely held view that there will be further consolidation in the ASP market, with Web hosting firms, network providers and IT infrastructure providers merging to form huge hosting companies that will ultimately let customers choose applications from a variety of providers.
With a year's experience as an ASP user, what advice can Opus's Beadle offer? 'It's an obvious choice,' he said. 'Our service has proved to be completely reliable. The question for prospective ASP users is: 'Why weren't you using it a year ago?''
In many cases the likely answer will be that firms have not heard of ASPs, or do not understand them. Significant doubts remain regarding security, management structure and what happens if relationships go wrong. But as big providers enter the sector, those concerns will be offset for many firms Ã, especially at branch offices and dot-com spin-offs Ã, by the speed of implementation and the flexibility of ASP services.
